Hurry Stimulus, The End is Near ... by gimleteye

In the first months of the Obama administration, one trillion dollars of fiscal stimulus will be pumped from taxpayer obligations to the states. Already, Congressional Democrats are rushing to the fire hoses, alongside the president-elect’s team to put out an economic conflagration with a flood of money. Speed is of the essence, we hear. President-elect Barack Obama this morning will warn that unless "dramatic action" is taken quickly, it may be too late to pull the economy out of a recession that could last for years. But wait: not so fast. There are some serious questions about accountability for the trillions that need to be answered.

There is a chance Congress and the White House will get it right: the states will move federal money quickly into infrastructure projects that have been waiting for funding. But there is equally a chance they won’t: not all these billion dollar projects are good ones. Many have opposition by a public that has been routinely ignored: from US Army Corps boondoggles, to highways to wastewater infrastructure that seeded the housing asset bubble.

The trap door in the Obama fiscal stimulus is not the volume of debt. It is corruption. And since corruption and its first cousin-- trespass of ethics-- got us into this mess in the first place, President-elect Obama and his team must prove to the American people it won't happen again, the same way.

Get the stimulus right, and the US economy may slowly revive, leading the world economy from the abyss. Get the stimulus wrong because we could not handle such a vast disbursement from the public treasury without triggering corruption, and the fiscal stimulus could be a tripwire for a Depression the likes of which the United States has never seen.

Do we have enough time? No one knows. But given the stakes, it is imperative that time and thoughtfulness take into account how the fiscal stimulus distribution could go haywire. The place to look is Miami: beginning with the case of Jorge and Carlos de Cespedes.

The de Cespedes brothers were sentenced yesterday to nine years in prison for using their Miami-based company, Pharmed, once one of the largest Hispanic businesses in America, to bilk millions from the Kendall Regional Medical Center. (‘Pharmed co-founders sentenced to 9 years in prison, Miami Herald, Jan. 7, 2009).

An earlier Miami Herald article describing the de Cespedes’ travails notes that in 1998-- the year Jeb Bush became governor of Florida-- Carlos de Cespedes was one of "25 community leaders who signed a public letter decrying corruption in South Florida." (‘180 letters urge leniency for former Pharmed owners in fraud charge’, Miami Herald, Jan. 2, 2009)

The connection between the Cespedes, big Republican donors, and Jeb Bush is not incidental. The "laissez faire" doctrine of government was perfected by former Gov. Bush and a solid, red state legislature in Florida. Today it is in tatters; the result of a misplaced faith that commerce could do better than government in protecting free markets. In his 2003 inaugural speech Gov. Bush outlined the case: "There will be no greater tribute to our maturity as a society than if we can make these buildings around us empty of workers; as silent monuments to the time when government played a larger role than it deserved or could adequately fill."

His audience did not mistake his meaning: get the regulators out of the way of progress and profit.

In its outstanding 2008 eight month investigation, “Borrowers Betrayed”, The Miami Herald revealed in painful detail the lack of regulatory supervision of mortgage brokers by the state of Florida. Miami Herald editors unfortunately kept the series’ focus on poor victims exploited by greedy mortgage brokers and lax bureaucrats; they pointedly did not trace that corruption up the political food chain. Had they done so, they would have tracked readers straight to the governor’s mansion and powerful Republicans banking on a permanent majority in Congress and the White House.

For Obama administration officials pressed for time and reading this story, this point may seem the time to put it down; no different from Chicago ward politics. But here is twist worth considering of the potential rear-view mirror of the Obama fiscal stimulus plan.

"We believe there is much we can do as a community to clean up our act”, proclaimed Miami’s Hispanic business leaders in June 1998, gathered under the umbrella of Mesa Rodonda to express outrage against rampant corruption in Miami-Dade County. "We have had it!" begins their letter. "Once regarded as the crime capital of America, we are now perceived as its corruption capital." ("Hispanic business leaders call summit to fight corruption", Miami Herald, June 2, 1998)

Carlos de Cespedes was among the signers.

A week later the Miami Dade State Attorney's Office announced: "… the arrest of Antonio J. Reyes, Director and Chief Operating Officer of Thermoplastic & Signs, Inc., in connection with a joint investigation by the State Attorney's Office and the Miami-Dade Police Department Public Corruption Unit. ... (Investigators) uncovered numerous circumstances wherein Reyes and his company submitted bills, under the County's paving contract, with Church & Tower, for roadway striping work that was never done. Reyes' company was hired as a sub-contractor under the County contract to do this work and submitted invoices for payment to the Contractor, and ultimately the County. These instances of over billing resulted in an overpayment by the County in excess of $1,000,000." (June 10, 1998)

Church and Tower is a division of the corporate interests of the family of the late Jorge Mas Canosa, founder of the Cuban American National Foundation. One of the signers of the Mesa Rodonda letter was Mas Canosa's son, Jorge Mas Santos. Another signer was Sergio Pino, listed as president of Century Plumbing. Plumbing, in this case, is a metaphor of its own. Slightly more than a year later, The Miami Herald would amplify:

"Miami International Airport, rated among America's worst for passengers, is being used by Miami-Dade politicians as a billion-dollar piggy bank to enrich their friends and campaign contributors. They manipulate rules so favored firms get airport deals. ... Key findings: Virtually all major deals at MIA go to companies that give political contributions and employ lobbyists who are key fund-raisers and advisors for county politicians. ("The airport mess: Miami's tourism industry is threatened by politicians", Miami Herald, October 17, 1999)

The Herald continues, "If passengers aren't winning at MIA, who is? Often, it's a small group of political insiders who reap millions in airport spoils without ever showing up for work, investing significant cash or bringing industry experience to the table. Developer Sergio Pino is one of the main fund-raisers for Miami-Dade Mayor Alex Penelas and has contributed to at least 11 of the 13 commissioners. Last year, at Penelas' request, he hosted a $238,000 fund-raiser for Commissioner Miriam Alonso."

"In 1998, Miami-Dade Commissioner Miriam Alonso penned an editorial bemoaning the plague of corruption scandals then afflicting the county, and lashing out at "the venality of certain corrupt officials." On Thursday, some eight years later, Alonso's own venality was finally laid bare: She pleaded guilty to 20 felonies for looting campaign accounts in 1998 and 1999 and trying to cover up the crimes. ("Alonso pleads guilty, says she is sorry", Miami Herald, Oct. 27, 2006)

In "Airport Mess", the Herald noted, "One of South Florida's biggest builders, Pino owns a waterfront home and a 54-foot yacht and has a net worth of at least $19 million. Yet in 1995, he was cut into the airport's duty-free shops as a "disadvantaged businessman'' to meet airport rules requiring minority partners. With his business interests now pulling in more than $32 million a year, Pino no longer qualifies as a minority entrepreneur, but he has kept his place in the duty-free deal: The county decided he could stay in under a grandfather clause. Pino readily acknowledges his political ties, but said his team won because it offered the best return. His inclusion as a disadvantaged businessman? “I didn't make the rules,'' he said. “I played by the law. . . . To me, it was a business opportunity.”

Back in 1998, Pino's key business colleagues were in the midst of a pitched battle on the no-bid 99 year lease they had secured from the county commission, before the US military had even decided how to dispose of the property, for the former Homestead Air Force Base: Greenberg Traurig attorney Miguel De Grandy was the principal lawyer representing HABDI; a newly formed company constituted from board members of the Latin Builders Association (including Mas Santos). Ramon Rasco, now chairman of US Century Bank that Pino founded in 2002, was a principal organizer of the HABDI fiasco.

Caesar Alvarez, managing partner of Greenberg Traurig, one of the nation’s largest law firms-- signed the Mesa Rodunda letter, too. Today, Alvarez is chairman of the charitable John S. and James L. Knight Foundation. The foundation, a premier institution defending independent journalism, failed to censure one of its grantees in 2008—the Miami International Film Festival—when last year, at the last minute, the festival director first approved then refused to air a documentary highly critical of Dominican Republic sugar operations owned by Miami’s billionaire Fanjul family interests.

Another signatory of the Mesa Rodonda letter, US Century board member Jose Cancela is a lobbyist to move the Urban Development Boundary in Miami-Dade. One controversial project is partly owned by Pino and other US Century board members; Rodney Barreto (Gov. Bush’s appointee, now chairman, of the Florida Wildlife Commission), Armando Guerra and the Herran brothers.

In 1998, political corruption was seemingly everywhere. Miami City Commissioner Humberto Hernandez did time in the Big House. Former state senator Al Gutman was indicted in 1999, along with his wife and 23 others, on charges of Medicaid fraud and conspiracy despite allegations swirling around his successful re-election bid a year earlier, supported by the panoply of Florida business campaign contributors. Gutman pleaded guilty to felony conspiracy charges that he helped set up home health care companies that never did any legitimate business, got names of purported patients from voter lists, and received over $800,000 in Medicare payments. He resigned from the Florida Senate as part of the plea bargain and was sentenced in 2000 to five years in prison.

1998 was a key year in the building and housing asset bubble. Think about what happened in Florida the decade after Cespedes put his name to the letter against corruption in Miami: the politics of laissez faire "libertarianism" in service of the free market were angling to meet up with the lowest interest rates in US history (at that time); the response to the crashing dot.com bubble and 9/11.

Today there is no chance low interest rates will meet up with financial derivatives from Wall Street; that is the conflagration world economic leaders are trying to put out. But turning the printing presses for currency to ‘high’ – in a multi-trillion dollar stimulus effort -- could have the same neat effect.

In 1998 the Miami homebuilders, contractors and business leaders who indignantly railed against corruption were about to be propelled into the housing asset bubble that turned single digit millionaires into centi-millionaires. Put one way: they want their game back. Put another way: you can pull the threads from platted subdivisions in West Miami, to infrastructure like Miami International Airport or Miami road paving contracts and the fabric of the US economy unravels straight up to the executive suites of Citigroup, Merrill Lynch, AIG, Bear Stearns, Lehman Brothers, Indymac, Fannie Mae and Freddie Mac.

The housing bubble was the flip side of institutionalized corruption of the intent and purpose of regulations, from mortgage origination to wetland protection. In Florida, one could not have happened without the other. All those platted subdivisions in wetlands could not have happened without the intimidation, neutering, and destruction of regulatory capacity in Florida, especially at the local level: the same level where a trillion dollars will be spread out like fertilizer for a moribund economy.

In 2006, a federal probe of Miami Dade County Commissioner Jose "Pepe" Diaz noted the presence of Sergio Pino. It centered on a fishing trip a few years earlier that Diaz took to Cancun aboard Pino's private jet. Carlos de Cespedes was the other passenger on the trip (“Pepe Diaz Cancun Visit is Probed”, Miami Herald, June 10, 2006). The investigation resulted in no charges. A few months after the trip, Diaz and the rest of the commission voted for a Pino development project called Grand Bay. The Herald political blog noted, "Miami-Dade Commissioner Jose ''Pepe'' Diaz received $20,000 in 2004 from what federal prosecutors describe as a shell company used to conceal fraudulent proceeds from a hospital kickback scheme -- a payment the commissioner says was a legitimate bonus. The company, Kaufman Medical Products, was cited in a document filed in federal court Tuesday about healthcare fraud charges against Carlos and Jorge de Céspedes, owners of the bankrupt Doral medical-supply firm Pharmed. Diaz listed on his 2004 public disclosure form that he had received $19,795 from Kaufman. Diaz said Wednesday the money was a bonus for work performed for the de Céspedes brothers' venture capital firm, Astri Group." ('Naked Politics', Miami Herald, July 24, 2008)

"In a separate matter, the Miami Daily Business Review reported last week that it had obtained corporate bank records showing that Pino's companies may have reimbursed $29.500 to 59 contributors to Governor Jeb Bush's 2002 re-election campaign. It is a violation of Florida election law for a person to make a donation in another person's name." ('Crist ally cuts ties amid grand jury investigation', St. Pete Times, July 27, 2006) Pino was a Bush-Cheney "Ranger" for having raised at least $200,000 for the president's 2004 re-election campaign and, according to the St. Pete Times, "is a major donor to Gov. Bush's non-profit educational foundation."

It is all one mesa rotonda; forcing politics to reside within a centimeter of the edge of the law while, those close to the edge blur the edge so that centimeter becomes a matter of continuous, revolving dispute; a banner crop pre-fertilized with campaign contributions for harvesting by engineering firms, consultants, and big law firms.



Again, the environment provides a clear example in Florida. In 1994, the State of Florida incorporated the settlement agreement with the federal government related to its failure to enforce against pollution of the Everglades by mandating a phosphorous standard of 10 parts per billion. The measure was to be in effect by 2006; a delay so angering activist Marjory Stoneman Douglas that the centenarian demanded her name be removed from the legislation. By 2003, Gov. Bush agreed to modify the hard and fast standard with an amendment to Florida law allowing for mixing zones and numerical calculations that decimated the agreement between the state and feds. The sugar industry flooded the state capital so that as the bill was being heard in the Senate, there were more lobbyists than legislators in the halls. Bush sent his chief environmental lieutenant, environmental secretary David Struhs, to the Miami courthouse steps to falsely claim that federal agencies were in agreement.

In July 2008, a federal court issued a stinging rebuke against the Florida law and said the US EPA had turned a "blind eye" to the state's blurred standard. ('Judge: Glades cleanup ignored', Miami Herald, July 30, 2008)

 Nearly fifteen years had passed.

It goes without saying that the same reasonable people who couldn’t agree on protecting wetlands from too much fertilizer, or only agree that the line of pollution should be blurred by jimmying the scales with arithmetic averages and mixing zones, would overlook risk analyses that allowed insiders to fleece the nation's financial institutions while getting paid billions and a triple A bond ratings at the same time. But that is not the point.

Few in public office cared while so much money was flowing outside and inside the edges of the law and into political campaigns. In key respects, this behavior is still reinforced by a permanent incumbency, insulated by gerrymandered districts, and a fading media.

 And that is not the point, either, for this or others drawn from this example. (In Miami-Dade County there is actually an ethics commission. Its charter and parameters are set by county commissioners whose business is to find the competitive edge to maintain their incumbencies; no incumbent has been turned out, absent criminal charges, since the early 1970’s.)

Here is the point: the first twelve months of the Obama administration will be a race against corruption to prevent a Depression.

In the first months of the Obama administration, one trillion dollars of fiscal stimulus will pour from taxpayer obligations to the states like Florida and counties like Miami-Dade, where thirty years of erosion of regulatory structure has left little in place to guarantee that the worst forms of local corruption can be averted.

"All we are looking to do is find a balance between residential needs and environmental needs," Commissioner Pepe Diaz told Time Magazine in reference to moving Miami-Dade County’s hotly contested Urban Development Boundary last year. ('Lowe's eyes the Everglades', Time Magazine, April 28, 2008) This notion of balance between the environment and economy is a multi-generational Ponzi scheme of its own; using later adopters to mask the shifting baselines that had been sold to an earlier generation of compromisers. Here is indicator of “balance”: between 1999 and 2003 in Florida, the US Army Corps of Engineers approved more than 12,000 wetlands permits and rejected one. During the same period, 84,000 acres of wetlands vanished. ("They won't say no", St. Pete Times, May 22, 2005)

As a result of allowing the regulatory capacity of government to wither, we will need to quickly build from the ground-up, a civil service and accountability that is rewarded for success and penalized for failure. The Obama administration needs to drill its assessment of personnel capacity into the depths of regulatory agencies and quickly assess just how bad the situation is. By accounts, from Treasury to Health to the Environment and Housing: in important respects the Grover Norquist vision of shrinking government so it could fit in the size of the bathtub has materialized only in respect to the withering of regulatory capacity. After all, it was the Bush White House banner for “personal responsibility” against the interference of government in industry that lead to the abandonment of ethical behavior, the biggest intervention of government in markets in US history, and mission accomplished.

Yes, there is an important difference in the way corruption will unfold; this time, not from Wall Street to local handlers but from seasoned financial experts, industry, and government steering trillions of taxpayer dollars to the states, and from the states, to local operators who once teamed up with rainmakers who used mathematically impenetrable financial derivatives to shower a blizzard of fees, commissions, and compensation on a very small group of insiders.

This time it could be easier to institutionalize fraud: who needs off-book balance sheets when the only accountability is to the guy who signs the time sheets on the government’s currency printing presses? There is a point to the exagueration: we have only a little knowledge how the federal government intervenes in financial markets. What we do know is that since the fall, US Treasury and Federal Reserve policy makers have been flying blind, sailing in uncharted waters: pick whatever metaphor you choose to dissolve the fabrication of markets based on supply and demand, and, free.

In the New York Times, Michael Lewis puts this reality in appropriate context: “Americans enter the New Year in a strange new role: financial lunatics.” (‘The End of the Financial World as We Know It, NY Times, January 4, 2009)

The point to consider: how misdirection in furtherance of allowing industry to self-regulate blurred the edge, made it larger and instead of bright lines-- lines like Miami-Dade’s Urban Development Boundary separating developable land from land unfavorable to development—and allowed corruption to flourish in cities like Miami; among campaign contributors and a powerful economic elite that are in many respects still intact, still vibrant and holding out until help arrives.

That help? A trillion dollars of your money and mine.

Not a single red cent should be appropriated by Congress for a fiscal stimulus until audit controls, checks, and balances are in place to flush fraud and systematic corruption from government. Making sure that the tsunami of taxpayer dollars will not end up lining the pockets of the same interests who created the crisis, papering purchase orders, contracts, under the table payments and further political IOU’s requires more than ethics classes, blue ribbon panels, and the assumption that Democrats will do better.

Since everything that can go wrong in financial markets did go wrong, since so much misplaced confidence was placed unregulated markets—some by Obama economic advisors like Robert Rubin—since men judged too brilliant or rich to fail embraced risk analyses that matched up to greed and the evasion of ethics; President-elect Obama must not make the mistake of trusting that honest purpose will prevail. The clock is ticking.